The EMV illusion: the connection between EMV and mobile payment.

Dai Vernon, “The Professor”, who died in 1992 was a Canadian magician and the greatest sleight of hand figure in the history of the art. He rarely performed, but he invented magic and had an enormous influence on the whole range of “sleight of hand”. And so often, the magic he was doing was to fool other magicians. Such is the case with yesterday’s announcement that the EMV AFD mandate, scheduled for 2017, is moved to 2020. The “sleight of hand”; create a crisis, propose a solution and when the true motivation for the project evaporates, move the requirement far enough into the future that its purpose fades until the need is so obscured as to not be necessary. The Professor would be proud, but for the many retailers, hardware manufactures and professionals betting on EMV at the pump, this is a cruel trick.

A few years back I wrote that EMV, while being presented as an antifraud tool, was really a disguised methodology to bring NFC to the pump. After all, if the goal was simply to eliminate counterfeit card use, swipe and PIN would have essentially eliminated that counterfeit card fraud. So, why was EMV/NFC so important, if there were cheaper ways to reduce fraud? The answer lies in mobile payment.

During the last five years the world has witnessed the conversion to a mobile digital society. Initially the card associations sought to enable mobile through the use of NFC. This was critical because the Card Brands sought to protect their business model against disruptive models and bake bank issued cards into payment terminals and the AFD. The ROI on mobile payment is elusive and so the EMV liability shift was created (the sleight of hand) to create the ROI needed to drive NFC to the pump. What went wrong?

Two major issues have pulled the curtain back from the EMV illusion; cost (how) and need (way). There is little to say about the cost of EMV, other than prohibitive. One MOC showed me an estimate where the cost was north of $100M, WOW!

The “why” is more complicated. Over the last two years, cloud based payment models that leverage the POS, rather than NFC at payment terminal are now proving themselves in the market. MasterCard and Visa’s agreement with PayPal, the release of standards and multiple pilots, are an indicator of their belief that cloud based solutions will lead the way in mobile. Cloud based systems do not require communication between the payment terminal the phone, and therefore many of the arguments about NFC are eliminated. Further, there are many use cases, like vehicle based payment or drive-troughs where cloud based solutions are more effective than NFC. If cloud-based solutions become wide spread, then NFC is no longer relevant. Further, if you believe, as many do, that millions of consumers will adopt mobile, and mobile payment will be cloud based, then as card based usage at the pump declines, the rational for the investment in EMV evaporates.

Retail is a blood sport, period. Never mind the concept of “friendly competition”; the battle for the consumers’ business is a Win/Lose equation. In the retail space, platitudes, like “everybody plays, everybody wins” could not be further from the truth. In the retail business there are winners and losers. Retail sales ... Continue reading →